China will limit short selling on the stock market from October 30. The authorities are introducing such a measure to support the market against the backdrop of deteriorating political relations with the United States, which has caused an outflow of foreign investors. The restriction may help in the short term, Artem Mayorov, director of the asset management department of Ingosstrakh-Investments Management Company, told Vedomosti.
Mayorov also noted that on October 16, the Chinese authorities condemned the position of Israel, which declared its desire to completely destroy the Hamas group during the armed conflict. According to his forecast, this may also provoke an outflow of foreign investment.
The expert explained that short sales in the stock market (“shorts”) are transactions in shares that are not owned by investors. Traders borrow such assets from brokers and open a short position on them in the hope of making money on a fall in the stock’s value.
According to Bloomberg, the China Securities Regulatory Commission (CSRC) will limit shorts to support the stock market from October 30th. To open and hold short positions on common shares, the risk rate will be increased from 50% to 80%. For hedge funds, the figure will increase to 100%, the agency clarified. The share of shorts in the total number of transactions on the Chinese stock market is 0.13%.
China is introducing such a measure to neutralize the fall in the stock market after a record sale of shares by global funds worth 89.7 billion yuan ($12.6 billion at the exchange rate as of October 16) in August.
Mayorov clarified that in the near future, limiting the sale of securities by local large players will give a positive result. But in the long term, the market will remain under pressure due to the exit of foreign investors.
According to the expert, this situation is favorable for Russian investors to enter the market. Moreover, China is actively attracting investors from countries that are allies on the political agenda, summarized the director of the asset management department of Ingosstrakh-Investments Management Company.
The Central Bank of China in mid-August lowered the key rate by 0.15 percentage points to 2.5% due to the fall of the stock market. The country’s authorities also urged large investors to sell shares less actively.